Debt financing has long played a critical role in the capital-intensive U.S. farm sector, but the level of debt is growing and gaining more attention as farm income continues to decline.

Total indebtedness now stands at $407 billion, up 46 percent since 2010.

Adjusted for inflation and other factors, farm debt is approaching the peak levels seen in the late 1970s before the farm crisis of the 1980s, Brent Glory, a partner at Agricultural Economics Insights, said in the consulting firm’s weekly update.

“If it were to grow roughly another 4 percent in 2019, something that seems fairly likely at present, it would eclipse the previous high,” he said.

The situation is not on the scale of the farm crisis in the 1980s, but this is not good, either, Glory told Capital Press.

Real estate debt has accounted for most of the increase. At $248 billion, it currently accounts for 61 percent of total debt, compared to 55 percent of total debt in 2010, he said.

There is room for real estate debt to rise. In Iowa, for instance, a large percentage of farmland isn’t mortgaged. Whether increasing real estate debt is a good idea is another question, he said.

People are going to have to decide how much more debt they are willing to add, and lenders might not be willing to lend a lot more, he said.

There has also been a large decline in financial assets, which have fallen $62 billion, or 50 percent, from 2010, he said.

“I think it’s going to be a tough winter unless something changes. When people see their lender at the end of the year, next spring, I think there is going to be a lot of scrutiny on loans,” he said.

While the situation is not as bad as the dramatic downturn in the ’80s, it does share some of the same elements — with the trade deal reminiscent of the shocks going on at that time, he said.

“Agriculture is so dependent on exports — anytime you monkey around with that, it causes big disruptions,” he said.

Commodities have to go to places they’re not now going, and there’s a reason they’re not going to those markets — transaction costs are high, he said. So prices have to fall to get them to go where they don’t want to. People don’t realize how high those costs are, and right now it’s substantial, he said.

It’s uncharted water for U.S. agriculture and really hard to predict how long the trade problem is going to exist, and it’s changed the dynamic in the marketplace, he said.

There’s no denying there are some big crops out there, but prices and basis wouldn’t be where they’re at now without the trade issue. It’s frustrating for people in the middle of it because they just don’t know what’s going to happen, he said.

“It’s a very difficult environment to make decisions in and operate in. It’s really going to come home next spring when people go to make acreage decisions,” he said.